During the ongoing global financial crisis traders and investors leave behind the question «How to make money?» and start asking another question — «How to save money?». In my opinion, the current situation on the Forex market allows combining those two question into the one, because with the right strategy you can start earning on the crisis — earning enough to protect yourself from the crisis and even capitalize on the global financial turmoil.
Any active Forex trader would notice that the most benefiting currencies during the current crisis are the U.S. dollar and the Japanese yen. The reason for their strength is the demand for the low-risk assets during the serious financial troubles. One part of the investors is trying to cash out of the risky assets (emerging markets, foreign currencies) — this leads to a increased demand for dollar; another part of the investors is buying the U. S. Treasury notes and the Japanese bonds as the safest investment possible — this also leads to an elevated demand for dollar and yen since they are required to buy the treasuries and bonds.
All this leads to an interesting conclusion — while the crisis is active, both dollar and yen will grow against other currencies. Yen will grow faster than dollar, because it’s considered even less risky than the greenback. So, what the average trader or investor, or anyone who wants to protect his assets during the crisis can do? Sell the USD- and JPY-based currency pairs!
Depending on the available free cash, anyone can set up the long-term short positions on such currency pairs as EUR/USD, GBP/USD, EUR/JPY, GBP/JPY and AUD/JPY, NZD/JPY with or without the margin leverage. The main idea here is to keep these positions without take-profit level (they are not for «taking profit», they are to hedge your other assets) and stop-loss level (you’ll stop them out manually when the crisis is over). You won’t need to react to the intraday price changes, all you need to do after opening such hedge positions is to monitor the overall market situation and exit those positions when the crisis is really over. You shouldn’t confuse local bottoms with the strong change of the trend. Keep the positions open for as long as there are still some problems in the global economy.
Of course, many Forex traders already found out that such technique can be used now and are already hedging against the crisis. But this post is intended mostly for those who are barely acquainted with the Forex market and don’t know what to do with it. This is a good chance to use the Forex market to your advantage.